FTO vs. PTO: Which Should You Offer?

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While offering paid time off (PTO) isn’t a federal requirement, most employers offer it as part of their employee benefits package. This trend is unsurprising, considering 63% of employees state that they wouldn’t accept a job that didn’t offer paid leave. So the question for most organizations isn’t whether to offer paid time off but what kind of PTO policy to develop. Flexible time off (FTO) is one of the many creative time-off policies companies use to attract and retain top talent. 

Difference Between FTO and PTO

Paid time off (PTO) refers to any time employees can take away from the office and still get paid. It is a broad term covering multiple types of paid leave, including personal time off, sick leave, vacation time, and mental health days.

While PTO and paid leave are often used interchangeably, there is a difference. Traditionally, paid leave policies segment different types of excused absences. For example, an organization might offer separate policies and number of days for sick, personal, and vacation time. 

Under this policy, an eligible employee might be entitled to ten vacation days, two personal days off, and five sick days. The employee needs to specify the reason for taking time away from the office, and then HR deducts the time off from the appropriate entitlement. 

Paid time off follows a similar concept, except the company consolidates these paid leave policies into one PTO bank instead of separate buckets. Following the same example, the employee is entitled to 17 PTO days annually. Employees can use their PTO bank for any reason, whether illness, a mental health day, running errands, or attending a school event, and they don’t necessarily need to specify why they are requesting days off.

The difference between PTO and FTO is more subtle. Technically, flexible time off is a type of PTO since it covers time away from work when the employee is still getting paid. 

PTO refers to any time an employee is away from work and still getting paid, while FTO refers to how the company manages the policy. Another way to think about it is that FTO is just a flexible PTO policy.  

Another important distinction between regular PTO and FTO is how employees access time off. Most PTO policies require employees to accrue paid time off through hours worked. For example, an employee may earn 10 PTO days per year. 

FTO policies don’t require employees to earn PTO hours before taking time off. Instead, employees are entitled to a fixed or unlimited number of PTO days at the beginning of the year. 

The Relationship Between FTO and PTO 

Since FTO is a paid time off (PTO) benefit, it is impossible to separate the two. Therefore, FTO and PTO work side-by-side in any organization. And since FTO is malleable, you can craft the leave policy that suits your workforce and company culture. 

It’s worth noting that FTO doesn’t necessarily mean employees have unlimited paid time off. Unless expressly stated, FTO isn’t about how many days an employee can take off. Instead, FTO includes benefits not offered under typical PTO policies. 

For instance, traditional PTO usually caps the number of paid leave days employees can take in a year. With an FTO policy, you can opt for unlimited time off or allow employees to take leave without advance notice if they are away for fewer than two or three consecutive days. It’s what makes the FTO flexible.

You can also add provisions to your FTO that are typically not included in the standard PTO policy. For example, some organizations that offer capped FTO allow employees to donate their leave days to their colleagues. Similarly, other organizations allow employees to sell back unused paid leave days to the company at the end of the year.  

It’s also worth mentioning that some companies use traditional PTO and FTO for different types of employees. For example, a company may offer part-time employees a specific number of PTO days, while full-time salaried employees get unlimited PTO. Another company may offer up to four weeks’ paid sabbatical for employees over five years of tenure in its time off policy. 

When FTO is The Best Option For Your Company 

Below are a few scenarios when offering FTO may be best for your organization. 

Competitors Offer FTO 

Recruiting and retaining top talent is a significant challenge for many organizations. This problem is even more pronounced for businesses that don’t have the budget to offer the high compensation and fringe benefits of other organizations. FTO can be an excellent way to level the playing field and attract high achievers. 

While many employees prefer higher salaries, others value flexibility and autonomy. Specifically, millennials value work-life balance more than previous generations. As a result, organizations that target the millennial workforce may opt for an FTO to attract highly qualified candidates. 

For example, including work-from-home opportunities, unlimited time off or generous PTO, and mental health days can make your organization more attractive to candidates. It’s why most Silicon Valley companies offer some form of FTO.  

Easing HR Administrative Burden 

Most startups and bootstrapped companies lack a mature HR infrastructure. And with responsibilities like recruiting, employee safety, payroll administration, and compliance, leave management might be an unnecessary additional task. 

Worse still, some startups don’t have an HR department at all. Instead, they rely on management to discharge traditional HR duties. Administering paid time off adds to an already full plate in this situation. 

An FTO policy often means that HR doesn’t have to track PTO. Therefore, they don’t have to worry about accrual, rollover, or payouts when employees leave the organization. Eliminating this administrative burden can help the HR department and managers to focus on other core duties. 

High-Trust Environments 

Many companies don’t have a traditional 9 to 5 schedule. Therefore, tracking PTO might be an unnecessary task. A good example that comes to mind is a small project team that focuses more on deliverables than deadlines. 

Such a team may have a strong culture and excellent teamwork. Teammates expect no one to take time off during a critical part of the project or too close to the deadline. FTO can be a welcome perk, allowing the team members to control their schedules. 

Similarly, FTO can be an excellent motivator for high-performing teams. Employees know they can take more time off by completing their work to a high standard. An FTO policy may encourage such teams to work harder to enjoy more time off. 

Too Much Accrued PTO Liability 

Many states require employers to pay out unused vacation time when employees leave the organization. Others also have rules limiting or prohibiting a use-it-or-lose-it PTO policy. So, accrued PTO can be a significant financial liability. 

The main goal of paid vacation time is for employees to take a break to refresh and rejuvenate. However, some employees may hoard their vacation days, hoping to cash out when they exit. This scenario is prevalent with people planning to quit or those approaching retirement and wanting to increase their retirement benefits. 

FTO isn’t considered an accrued or earned benefit, and companies aren’t required to pay out unused PTO in most cases. Thus, a flexible FTO policy, such as unlimited paid time off, can significantly reduce financial liability. However, paying out unused vacation days might be necessary if you switch from a traditional PTO policy to FTO. 

As An Alternative to Unlimited PTO

Unlimited PTO is almost now a buzzword offered by every company that wants to appear progressive. However, unlimited PTO is rarely as attractive or practical as it appears on paper. Moreover, this policy is open to abuse, difficult to administer, and often leads to employees taking less time off.

A flexible paid time off policy is a terrific alternative to unlimited PTO. But, again, unless expressly stated, FTO doesn’t mean unlimited time off. It’s similar to a traditional capped PTO with more flexibility built in. 

Ideally, unlimited PTO should be a no-strings policy that allows employees to take as many days off as they want, whenever they want. However, setting guidelines for unlimited PTO can make you appear disingenuous, and FTO can offer similar benefits without the ambiguity of unlimited PTO. 

For example, FTO allows you to set rules for:

  • Who’s eligible for flexible time off, such as full-time employees or executives
  • Minimum and/or maximum time off an employee can take in a calendar year
  • Leave approval considerations, such as workload or employee performance
  • Advance notice for non-emergency absences 
  • Whether holidays are included in the flexible time off policy

So FTO is a middle ground between traditional vacation time and unlimited PTO. It’s also easier to administer FTO if you have a comprehensive leave policy document. 

When FTO Isn’t A Good Option For Your Company 

Flexible time off policies certainly have many benefits. However, there are scenarios where you might want to re-think administering FTO. 

You Want to Reward Employee Loyalty 

The typical FTO policy provides standard paid time off for all employees, and employees are awarded leave days at the beginning of the year. Longer-serving workers might feel disenfranchised if they receive the same leave benefits as their newer counterparts. 

Most traditional PTO policies award leave days based on tenure. For instance, an employee may be awarded 15 days on their first year of service, 20 days after working between one and six years, and 25 days for more than six years of continuous service. While FTO may be good for recruiting, a traditional PTO might be better for employee retention. 

You Struggle With Leave Administration 

A traditional PTO is relatively straightforward. The typical policy document contains annual allotment or accrual provisions, eligibility, rollover, request procedures, and payment upon termination. A standard PTO policy template works for almost any organization. 

A flexible time off policy is a blank slate. You have to create a comprehensive policy from scratch based on your organization’s requirements. It can be a difficult task for a new business with insufficient HR resources. 

An FTO policy is also difficult to communicate to employees. For example, the appropriate number of leave days may be open to interpretation if your FTO is unlimited. Similarly, you’ll need to craft a policy preventing multiple people from taking time off simultaneously. 

You’re Transitioning from A Traditional PTO Policy

Many companies are transitioning from paid vacation and sick leave policies to all-inclusive policies. And since most employers pay out unused vacation days upon termination, it’s not unusual for employees to hoard vacation time. 

Transitioning to FTO might mean employees are no longer entitled to cash out unused vacation days. As a result, you can expect push-back from employees who’ve already accrued significant vacation time. Some states even determine that employees cannot forfeit accrued or awarded paid leave. 

Transitioning to PTO might be the more natural solution in this situation. PTO already offers FTO’s main benefit, giving employees more control over how they spend their time off. Additionally, employees won’t lose their accrued vacation days under the PTO policy and can still cash out when they leave. 

You Need to Predict Employee Availability 

Setting time off rules in a PTO policy is more straightforward than with an FTO. The latter makes it difficult to predict employee availability since staff can take time off when they want. This policy type is impractical in industries that require employees to be available during certain times based on clients’ or vendors’ schedules. 

Some organizations get around this problem by implementing absence management and scheduling systems. A shared calendar also helps to provide visibility into employee availability. However, exerting this kind of control defeats the purpose of having a flexible paid time off policy in the first place. 

Your Workforce Has Mixed Work Hours

FTO doesn’t work for certain types of workers. For example, part-time or hourly workers and contractors often don’t receive paid time off. Or their paid leave entitlement may be limited compared to full-time employees. A traditional PTO bank policy works best for these types of workers. 

Final Thoughts on FTO vs. PTO

Flexible time off is gaining ground as an alternative to traditional vacation time and PTO banks. However, while FTO has many advantages, it’s unsuitable for some companies. Therefore, thinking about your company’s needs is more important than following trends blindly. 

Similarly, a survey of your staff can help guide you in the right direction. Managers also have a strong sense of their employee’s needs, so it’s worth incorporating them into your decision-making. Lastly, the best policy should help you achieve your goals, including attracting and retaining top talent and motivating employees. 

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